Surviving Infosys | Value Research With most funds overweight on Infosys, the crash in its stock price is giving sleepless nights to fund managers

Surviving Infosys

With most funds overweight on Infosys, the crash in its stock price is giving sleepless nights to fund managers

It is nothing short of snapping a lifeline! When the toast of the Indian tech sector, Infosys announced a growth warning on Wednesday, it was a bombshell for most fund managers. It not only dashed the hopes of a near-term revival for the beleaguered sector but also dragged the scrip down 16% or Rs 617 and severely hit the NAVs of Infy-heavy funds. In fact, in the last two days, the company has lost an unbelievable 28% or Rs 1,000 on the Bombay Stock Exchange. Infosys is one of the mainstays of as many as 130 funds, including monthly income plans and balanced funds, with a cumulative investment of Rs 2900 crore on February 28, 2001. Little wonder then, the mayhem in the scrip is giving sleepless nights to fund managers.

As many as 28 funds have invested over 10% of their assets in Infosys, with funds like Canequity Taxsaver holding over one-third of their corpus in the company. The concentrated investment from these funds is alone a whopping Rs 700 crore. Unfortunately for their investors, the "all-weather" stock has now fallen a prey to the global slowdown and expects just a 30% growth this year against a 112% jump in turnover for the last fiscal.

Among the worst hit by Infosys' fall are funds from Canbank Mutual Fund. However, the quantum of loss cannot be ascertained since the AMC is not disclosing NAVs due to book-closure. Another top loser was ING Growth Portfolio that shed a whopping 14.2% with Infosys accounting for over a fifth of the corpus.

However, some fund managers are still upbeat about the company and believe even a 30% growth rate is impressive in such trying circumstances. "You cannot expect a plus 100% growth rate every year. That velocity of growth is clearly not sustainable. In fact, once the slowdown is over, the company has the potential to grow at 45-50% a year,'' says a fund manager. "Infosys has always been conservative with its estimate since it wants to outperforming its own numbers. Further, the company has a strong offshore development capability and is expected to bag contracts even in the current downturn. Thus, the company could actually grow by 35-40% this year, which will be a big boost,'' adds the CIO of a mutual fund.

Nonetheless, while fund managers are surely not abandoning Infosys and definitely not at these levels, the halo around the scrip has definitely disappeared. With Infy no longer invincible, fund managers are unlikely to recklessly buy the stock going forward. While this is expected to bring down the dependence on the stock for generating returns, yet, it has been a hard lesson for most fund houses.

The Infosys Syndrome
    % of Net Assets *  Fall on April 11
  ING Growth Portfolio 22.31 -14.2
  KP Infotech-G 20.6 -11.0
  UTI Software 18.8 -10.2
  KP Internet Opportunities Fund 18.71 -6.8
  Magnum IT 18.6 -9.8
  Birla Equity Plan 13.44 -6.5
  Birla IT 13.43 -4.1
  Master Index 13.03 -3.9
  Birla Advantage 12.83 -3.9
  JM Equity-D 12.24 -4.8
* As On February 28, 2001

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